Competition and Cooperation: Balancing Family and Firm Models in Family BusinessesFebruary 18, 2016

Families and business ownership can intersect in fascinatingly complex ways. How family and business leaders think about family dynamics and corporate objectives may influence decisions more than what they think about. In short, the mental model of this crucial intersection matters. Research around how successful families build successful companies recognizes the push and pull of these different interests. There is even an entire industry of consultants working with family owned businesses to overcome these challenges. There are different ways to think about merging these two forces in a family-owned business. Some family leaders describe the family system as socialist or egalitarian, emphasizing themes of fairness and equality, while corporations are described as capitalist or a meritocracy, emphasizing themes of accomplishment and objectivity. This socialist/capitalist dichotomy may be useful in highlighting certain systemic differences, but further exploration suggests considering alternative models for this crucial dynamic.

Dr. Alex Stewart, the Director of the Kohler Center for Entrepreneurship at Marquette University, suggests a more nuanced approached inspired from Eastern philosophies. He applies the traditional yin/yang model when considering the interaction of family and firm dynamics[i]. Based on his review of family owned firms, he proposes a more comprehensive duality (see Figure 1). He suggests many attributes of the two systems are not in contrast, nor in conflict with each other, “We know that yin and yang have complex inter-connections. We have reason to consider these connections to be, on balance, complementary.”[ii]

The yin/yang model was put forward years earlier by Collins and Porras based on their survey of many highly successful companies, where they found visionary leadership rejected what they called the “tyranny of the OR”. They propose the dualism is not a balance or a trade-off, but the acceptance of two seemingly contradictory ideas. “A visionary company doesn’t seek balance between short-term and long-term, for example. It seeks to do very well in the short-term and very well in the long term…A visionary company doesn’t simply balance between preserving a tightly held core ideology and stimulating vigorous change and movement; it does both to an extreme”(emphasis in original)[iii]. Their research, supported by others, suggests this approach can be consistently observed in successful firms.

The yin/yang model is supported by practical application, as it offers less opposition and less judgment than the socialist/capitalist labels, which are fraught with complicated associations. In America, we are overwhelmingly in favor of a capitalist system and have a history of fighting socialist or communist regimes. This builds an inherent distrust of any system with connotations to socialism resulting in a diminution, if not outright rejection, of the family-business in the binary model. Further, it’s unlikely a capitalist and socialist system could actively co-exist in the same political sphere. It’s easy to imagine each ideology battling in a tug-of-war for political supremacy, as we observe across much of Europe. If the socialist/capitalist model dominates the conversation on managing family and corporate responsibilities, at best there will be a struggle to balance competing objectives, and at worst, the family is placed at war with themselves. Conversations based in the socialist/capitalist models for managing family and corporate responsibilities create an internal struggle to balance competing objective, which can place a family and/or organization at war with themselves.

In contrast, the yin/yang model allows leadership to fully embrace two different objectives without comprising either, and at best, the pursuit of each objective enhances the other. Collins and Porras offer an example of this duality in practice. In their research, they found successful companies were able to articulate a clear goal which was tangible, energizing and highly focused. They coin the term “BHAG” for Big, Hairy, Audacious Goal, which has to be “…Clear and compelling and serves as a unifying focal point of effort – often creating immense team spirit.”[iv] The pursuit of a common goal is a simple definition of the objective of any business. The common goals vary by organization and industry, but for the purposes of the model, it is enough to simply identify the systemic purpose of any company, A group of talent brought together of their own volition to collectively achieve a common goal. The systemic purpose of the family fundamentally differs from this on several levels.

Family systems are not brought together of their own volition in the same way as a company. We cannot choose our family. Further, individuals stay attached to firms through a social dynamic which furthers their individual well-being, due to financial gain, social status, and other emotional forces, based on their individual performance. In comparison, a family is predicated on a completely inverse relationship. Parents perform years of work for the child to build loyalty, with no direct compensation, which is then “paid” years later through complex social interactions. Families are not constructed for the purposes of achieving a clear, compelling, tangible goal. Though, families often have a clear emotional sense of commitment to one another for the mutual benefit of all. The systemic purpose of any family can be captured as – A naturally occurring group of individuals emotionally committed to achieving the common good of all members. Where the firm strives for a common goal, the family strives for the common good.

These objectives which are dualistic in nature can be compatible and mutually achievable. It’s easy to conceive of objectives which meet both goals. The success of the family-owned firm, effective leadership communication and clear intergenerational expectations are all examples that meet both objectives. It is important for leaders to recognize there are differing objectives at play, particularly when decision-making involves multiple objectives at once, such as leadership transitions or the allocation of finite resources. Tensions often arise when these differing objectives are not clearly expressed, or do not have a structure in place to allow for their expression. It is outside the scope of this piece to address the mechanisms required to effectively manage these dualistic objectives. Rather the intention is to examine the models that have dominated traditional thinking about the differences between family and business structures, and how rethinking these models can provide an opportunity to better mend the structures in family-owned businesses. Rather the intention is to illustrate the importance of understanding the mental models which underpin our thinking about how family and firm intersect. The yin/yang model may allow for a more inclusive view of how families manage their interactions with one another, both inside and outside the family-owned business.